Thursday, July 26, 2007

Canada's Rising Dollar

For as long as I can remember the Canadian dollar (or the "Loonie" as it is popularly called, since it has a loon on the back of the gold colored coin) has been worth a fraction of a US dollar. For example, around 2001 one US dollar was worth approximately one and a half Canadian dollars. Since that time the exchange rate has shifted so that a Canadian dollar today is worth almost the same as a US dollar, and "experts" say that the US dollar (the "greenback" if we are talking about nicknames) will soon be worth less than a "loonie". In fact, when I was traveling in Canada a few years ago with a friend we'll call "Apocolypto" for the blog here we constantly made reference (jokingly) to the price of something being "Canadian" meaning cheaper than you'd expect. He got a ticket for driving above the speed limit and I think it was $90 dollars but then he paused and said... "Canadian".

This fall in the value of the dollar vs. the loonie is in parallel to the fall of the dollar against the Euro. Back when I travelled around Europe before 9/11 one dollar bought about one and one third Euros; now the dollar is worth about 3/4 of a Euro. This is a tremendous shift in buying power.

Why exchange rates rise and fall is a topic of great debate. In Canada's case, the country is in a good fiscal position and they benefit from rising commodity prices on oil & natural gas. Their separatist issues also seem to have receded from the boiling point.

Regardless of WHY the exchange rates change, you can see the impact on the gas pump above. I was driving across Canada in an SUV and it cost roughly twice as much to fill the tank as it does in the USA, even with our current gas prices. As a tourist, it wasn't unusual for me to spend an average of $60 / day driving around, even with a lot of stops for photos and eating. This high gas price issue used to be offset by the exchange rate, but no longer.

Moving on from exchange rates, Canada has a crazy energy policy. Canada taxes the heck out of their gasoline, even though the country is as rich in energy as Saudi Arabia (depending on how you count the oil sands). Their gas prices have risen in tandem with the spot price of gasoline, even though Canada has plenty of its own oil and refining capacity "to boot" so they are really soaking their own people. This record windfall (they make a lot of money from energy producers at the well head) is also contributing to the rise of the Canadian dollar since it is helping the government's overall fiscal situation.

Canada is a BIG country, as anyone who has driven there knows, and there aren't a lot of public transport options. I have taken the subway in Montreal and I am sure Toronto and some of the other big cities have buses and trains but, in general, you can't get around most of the country unless you drive. In addition, standing outside in the middle of winter in Canada waiting for a bus would literally be taking your life in your hands for a large portion of the country. Everyone seems to have a car and a large garage - the "car culture" is as big in Canada as it is in the United States. Thus it is hard to see what the high tax on gasoline is accomplishing, since it isn't changing anyone's behavior (they aren't walking on snowshoes) and it is hitting the overall economy by causing the Loonie to rise.

I guess it makes them feel good, or even superior, to those crazy Americans, to tax the hell out of themselves, even when their government is well or over-funded. That will be a topic for a future post...

1 comment:

Snakeye said...

That's funny... I had the same experience in Germany (with the Euro)... car rentals over there go for ~95 Euro and I converted out the price for your average fillup of just the cheap stuff: ~$6/gallon!